UPDATE 1-MF Global trustee urges new customer safeguards

Reuters

* Giddens recommends fund to guarantee futures customers

* Suggests CFTC boost protections of overseas futures funds

* Asks for increased liability for brokerage chiefs

By Alexandra Alper

WASHINGTON, June 4 (Reuters) - Futures customers should haveaccess to a fund that guarantees their accounts up to a certainthreshold, the trustee liquidating MF Global Holdings Ltd said in a report on Monday.

The report by James Giddens to the U.S. Bankruptcy Court inManhattan gives an update on his efforts to recover up to $1.6billion in missing customer funds, lost in MF Global's finaldays in October.

The report also makes recommendations to avoid a repeat ofthe chaos following the major brokerage firm's collapse,including a "modest protection fund" that would help futurescustomers in the event of a similar bankruptcy.

"A fund capped at a relatively low dollar amount percustomer would suffice to make these customers whole veryquickly even in a case with a shortfall the size of" MFGlobal's, Giddens said in the report. More than three quartersof the firm's customers had claims below $100,000, he said.

MF Global filed for bankruptcy on Oct. 31, after investorsand customers became rattled over the firm's $6.3 billion bet onEuropean sovereign debt and downgrades by credit ratingagencies, resulting in a liquidity crunch.

The bankruptcy and the missing funds have been the focus ofseveral congressional hearings and are under investigation byfederal agencies, including the Federal Bureau of Investigationand the Commodity Futures Trading Commission.

None of the firm's employees have been formally accused ofwrongdoing.

A futures fund might be modeled on the Securities InvestorProtection Corp, which guarantees customer securitiesinvestments up to $500,000.

"We have insurance funds for customers who put money inbanks; we have it for folks investing in stocks," Bart Chilton,a Democratic CFTC commissioner, said in an email. "It makessense to have insurance for futures customers, too."

Chilton has advocated for the creation of such a fund forfutures customers in the past.

Giddens also recommended that the CFTC beef up requirementsfor segregation of customer funds traded on foreign exchanges tomatch those that apply to U.S exchange-traded funds.

He asked the CFTC to clarify that all customer assets besegregated from the broker's funds, regardless of whether theyare invested at home or overseas.

Further, Giddens recommended that a firm's officers anddirectors be held "civilly liable" for events such as ashortfall in commodities funds segregation.

Giddens made similar recommendations when he testifiedbefore the Senate Banking Committee in April.

MORE REFORMS

The CFTC has sped up efforts to finalize rules mandated bythe 2010 Dodd-Frank financial oversight law and approved othersaimed at easing fears of futures customers still jittery afterMF Global's collapse.

Earlier this year, the CFTC approved rules that wouldrequire companies such as mutual funds that invest incommodities to register with the CFTC.

Another would restrict the investment of futures customerfunds, and a third protects cleared swaps customer contracts andcollateral.

CFTC Chairman Gary Gensler has also ordered an extensivereview of how futures brokerages are regulated by the agency.

Republicans lawmakers have pledged their support forboosting consumer protections but have declined to give specificexamples.

"I will work with regulators and customers to strengthen thesafeguards around customer accounts and to make sure thoseresponsible are held accountable," Republican Senator PatRoberts, ranking member of the Senate Agriculture Committeewhich oversees the CFTC, said in an email.

In an interview, Representative Randy Neugebauer, who headsa House Financial Services subcommittee investigating thecollapse of MF Global, said he would turn to potential reformsonce his subcommittee completed its report, due in July.

"What we want to do, is make sure we understand completelywhat transpired, so that when we start moving forward to restorethe confidence back into this process, we only fix what isbroken," he said.